Apple Plunges Despite EPS Beat On iPhone Sales Miss, Drop In China Sales, Weak Guidance And Strong Dollar Warning

Apple is important. Perhaps the most important company not only for the Dow Jones, but because it also happens to be the largest company by market cap, in the world. As such nobody will be happy that moments ago AAPL reported results which were in a word, lousy.

It wasn't so much the earnings, because the EPS of $1.85 was a modest beat of expectations of $1.81, while revenues also beat consensus of $49.4 billion fractionally, printing at $49.6 billion; the margin also beat slightly coming at 39.7% above the exp. 39.5%.

The problem was in the detail, with 47.5 million iPhone shipments missing expectations by 1.3 million units, even as both iPad (whose ASP came at $415 below the $426 expected), and Mac units coming in as expected.

But the biggest surprise was in China, where as we warned previously, the Apple euphoria appears to have ended with a bang, with greater China sales tumbling by 21% from $16.8 billion to $13.2 billion. And keep in mind this was in the quarter when the Composite was hitting multi year highs, and the July crash was not even on the horizon.

As for the cherry on top it was the company's guidance which now sees Q4 revenue at $49-$51 billion, or below the $51.1 bn consensus estimate, with the CFO adding that the strong USD is finally getting to the company, warning that Apple "faced a difficult foreign exchange environment."

And all this happened in a quarter in which AAPL bought back $10 billion of its own stock.

The above in charts:

Revenue:

 

Unit shipments:

 

Geographic breakdown:

 

Margins:

 

Finally, AAPL's net cash (excluding steadily rising debt) remains flat:

 

As expected, there was no mention of either the iWatch or Apple TV. Or a new buyback.

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And here, from the WSJ, is a reminder why AAPL is so very crucial to not only the tech sector, but the entire market:

No company produces bigger profits than Apple Inc. Likewise, no company contributes more to the profit picture of the S&P 500 than Apple.

 

Apple is a leviathan of a company that is a major contributor of profits in corporate America. Its fortunes, also, are inextricably intertwined with two of the biggest growth markets that exist, smartphones and China. That makes it a bellwether. Because of its success, Apple is also an out-sized member of the S&P 500. We noted yesterday that the stock comprises about one percentage point of the S&P 500's 3.5% gain for this year (before Tuesday's selloff). It is also, due to its massive profits and market-cap weighting within the index, the largest single contributor to S&P 500 profits. By a long shot.

 

Now, there certainly isn't anything to be worried about here. Apple is expected to earn about $1.80 a share, or about $10.4 billion, on nearly $50 billion in sales, and as usual with this company, the only real question is by how far will it exceed Street estimates.

 

Apple is projected to single-handedly give the tech sector all of its earnings growth this quarter, just edging it up by 0.2%. Without Apple, the sector would see a contraction of 6%.

 

It has a big impact on the overall market as well. Since the third quarter of 2011, Apple, for every single quarter, has comprised no less than 3% of the S&P 500's operating earnings, according to data from S&P Dow Jones Indices. It accounted for 2.87% of the index's operating earnings of $25.29 in September 2011, and has ranged higher since then. In the first quarter of 2015, it comprised 5.97% of the $25.81 operating profit. In the fourth quarter of 2014, it was 7.62% of the $26.75 profit.

 

Think of its this way. If all 500 of the companies in the index contributed an even amount, Apple's earnings would account for about 0.2% of the overall profit. On the contrary, Apple is by far the single biggest contributor to the index's earnings. The next largest contributor is J.P. Morgan, which is contributed about half of that, at 64 cents. For comparison sake, this is what other tech names are contributing: Microsoft Inc. (estimated): 52 cents, IBM: 42 cents, Google Inc.: 38 cents; Cisco Systems Inc. (estimated): 32 cents, Intel Corp.: 32 cents.

The result, AAPL is down over 7% after hours (and Nasdaq futures down 1.2%), with the 200DMA serving as support for now, so all those hoping for the "leviathan" break out will have to wait until the next quarter, or the release of the iWatch 2.0, whichever comes first.